Stock of the Day – Toll Holdings (TOL)

Toll Holdings is Australasia’s largest provider of integrated third party logistics services. Toll’s scale, network and market share in Australia offers barriers to entry and a cost advantage in some segments. Toll’s operations are highly leveraged to domestic and regional economic conditions particularly in the retail and resource sectors .Weal economic conditions on the Australian east coast and aggressive price based competition in core markets have weighed on earnings in recent years.


Toll Resources Group EBITDA (Source – Company Reports)

Toll Holdings reports fiscal 2014 underlying net profit after tax or NPAT of AUD 298.5 million, 7% ahead of our AUD 280 million estimate. The strong NPAT result was due to a lower than expected average tax rate. The operating performance was in line with our expectations. The result highlighted the challenging domestic and international operating conditions facing Toll. Aggressive price based competition, subdued consumer demand, a cost focused customer base and slowing investment in the resource sector are all head winds to revenue growth and margin expansion.


Toll Resources Group Revenue (Source – Company Reports)

Despite a highly developed domestic network, Toll has not been able to establish a meaningful competitive advantage in key segments, particularly offshore. These factors and a large goodwill balance, continue to dampen group returns. We remain cautious on the prospects for a short to medium term recovery in the subdued macro-economic conditions a key driver of Toll volumes.


TOLL Daily Chart (Source – Thomson Reuters)
 
Given operating leverage across the business we do not expect a material improvement in EBITDA margins without a cyclical recovery in macroeconomic conditions. EBITDA margins were 8.2% in fiscal 2014, in line with the prior year. Flat margins are despite a wide ranging cost out program being implement across the business.  Cost savings of around AUD 100 million were delivered in Fiscal 2014 although this was unable to offset inflationary pressures with the underlying cost base rising 1.8% against the prior year. We believe the stock is expensive at its current price and would review the stock at a later date.
  

---

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.
Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).
The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.
Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.
The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide.